Integral Equation Formulation For Shout Options

Authors

Roland Mallier, York UniversityFollow
Joanna M. Goard, University of WollongongFollow

RIS ID

129988

Publication Details

Mallier, R. & Goard, J. (2018). Integral Equation Formulation For Shout Options. ANZIAM Journal, 60 (1), 65-85.

Abstract

We use an integral equation formulation approach to value shout options, which are exotic options giving an investor the ability to "shout" and lock in profits while retaining the right to benefit from potentially favourable movements in the underlying asset price. Mathematically, the valuation is a free boundary problem involving an optimal exercise boundary which marks the region between shouting and not shouting. We also find the behaviour of the optimal exercise boundary for one- and two-shout options close to expiry.